Kansas raises tax forecast by $510M over next 2 years

Topeka — Kansas officials on Thursday boosted the state’s projections for tax collections by $510 million over two budget years, something certain to renew an already intense dispute between Democratic Gov. Laura Kelly and the Republican-controlled Legislature over cutting income taxes.

The new, more optimistic fiscal forecast eases the state’s budget picture as Kelly prepares to push again for an expansion of Medicaid health coverage to cover as many as 150,000 additional people in the state. Despite a solid economy, she and lawmakers have worried that the state might face budget shortfalls by 2023, and such problems now are likely further off.

But the upward revision of the state’s revenue numbers also came after Kelly vetoed two GOP tax relief measures aimed at ensuring that individuals and businesses don’t pay more in state income taxes because of changes in federal tax laws at the end of 2017. Kelly argued that the Republican cuts would wreck the budget.

“Large receipts shouldn’t mean more dollars to grow government,” said Senate President Susan Wagle, a conservative Wichita Republican. “There are no excuses for not passing the additional funds back to the taxpayer.”

Kelly said in a statement that the new forecast does allow the state to explore unspecified “common sense tax reform options” while investing in public schools and infrastructure.

But, she added: “I was elected to bring fiscally responsible principles back to our government, and it’s a priority of mine while rebuilding the state of Kansas.”

The new forecast reflects a solid economy with steady growth and low unemployment and assumes that the state doesn’t fall into a recession through June 2021.

The forecasting group of legislative researchers, Kelly administration staff and university economists increased the projections for total tax collections during the current budget year by $207 million, or 2.8%, making it $7.7 billion. The group also boosted the projection for tax collections during the budget year that begins in July 2020 by $303 million, or 4.1%, making it more than $7.9 billion.

The group had been expected to make the new forecast more optimistic than the previous one, issued in November. Tax collections since the current budget year began July 1 have run almost 4%, or nearly $85 million, above expectations. The state has seen better-than-anticipated collections for nine straight months and 28 of the past 29 months.

Also, the state’s unemployment rate has remained below 4% since January 2017, dropping to 3.2% as of September. The forecasters expect it to remain well below 4% through 2020.

“We are experiencing and should continue experiencing steady growth,” Larry Campbell, the governor’s budget director, said during a Statehouse news conference.

The bulk of the additional projected tax collections — $410 million over two budget years — is in individual and corporate income tax collections. The forecasters also became more bullish about sales tax collections, while they made more pessimistic predictions about taxes collected from oil and gas production and insurance companies.

“Employment remains strong. Wages have been growing, and the labor market is still relatively tight,” said J.G. Scott, director of the Legislature’s nonpartisan research staff.

Campbell said expanding Medicaid remains a priority for Kelly and she wants to build up the state’s cash reserves as a hedge against future budget problems. Top Republican lawmakers blocked Medicaid expansion earlier this year but committed to a debate next year.

But GOP legislative leaders are keen to cut income taxes, eliminating what they see as an unplanned windfall to the state from changes in federal laws championed by President Donald Trump. One change prevents thousands of filers from claiming itemized deductions for their state income taxes — costing them $60 million a year.

Kelly promised during her successful campaign for governor last year to work to lower the state’s 6.5% sales tax on groceries. She didn’t pursue that this year, arguing that the state had to stabilize its budget first.


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